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Home buying and the bottom line

My mother, like many others, used to insist I “get all my ducks in a row.”

Nowhere is doing so more important than in buying a house.

My wife and I are would-be second-time homebuyers. The first time, six years ago, we were childless with a good chunk of cash in the bank. We looked until we found a home in our price range, put it under contract, and never sweated the details – like the minor imperfections in the home, the upkeep, the inexact science of escrowing for insurance and taxes. Just tell us when to be at the closing and how much the check should be made out for.

This time around is different. We learned plenty from the process the last time, especially in the two years it took us to sell the home during the housing crisis. When we go through a house now, we look at everything: What needs to be repaired and what it will cost, what will require regular upkeep and what will it cost, and because we’re now a family of four that watches every dollar, what are the hidden costs between contract and closing.

Our position is relatively unusual among homebuyers these days – we will make a 20 percent down payment to avoid mortgage insurance and ensure a good interest rate. That means we must be diligent about our cash position. And that means we can’t simply shrug off unexpected costs that pop up, like a termite treatment, a survey for a flood elevation and make-the-house-livable repairs that show up at inspection.

Those costs quickly change the upfront expenses. Repairs to the electrical systems or plumbing or the HVAC or the roof can easily run into the thousands. Malfunctioning appliances are expensive to replace. Pest treatments and elevation surveys are worth every penny in the long run but are a checkbook nuisance in the near term.

Many buyers, after attempting to negotiate those costs with the seller, would simply either roll them into the loan or use their cash reserves and make a smaller down payment. That’s an option, just not a good one.

To address these issues, you need two things: A balance sheet and a bottom line.

First, the balance sheet. Get professional estimates on all the repairs (even if the companies charge you to prepare them). Get the Good Faith Estimate on closing costs from the lender. Communicate with your insurance agent and know how big a check you’ll need to write him (or your escrow account) before moving in.

Total those numbers and look at your bottom line. The bottom line should be the amount of cash you have on hand minus your emergency funds. Don’t tap those reserves to make a deal go through. Cars die, illnesses and injuries happen unexpectedly and employers sometimes must make hard decisions about their workforce. Have some money put back just in case.

And when looking at your balance sheet and bottom line to determine cash position, don’t be afraid to step back and compare the deal you are currently looking at to other potential deals. If you have two houses, and one is less expensive than the other but will require more upfront costs to make livable, the pricier house may end up the better deal.

Remember, we are in one of best buyer’s markets in generations right now, and stubborn sellers are dumb sellers. Trust me; I once epitomized the stubborn/dumb seller.

Whatever you don’t, don’t get caught up in house fever. Just because you find one you like and you think it’s the deal of a lifetime doesn’t mean you should grin and bear the unexpected costs just to close. There are other great houses and other great deals out there. They are literally on every corner right now.

Know your cash position. Make up the balance sheet and establish a bottom line. Get all your ducks in a row.